Global or Domestic Factors? Assessing Stock Market Volatility During Indonesian Presidential Elections

This study investigates whether stock market volatility of the Indonesian Composite Index (IHSG) during presidential elections is predominantly driven by global or domestic factors. Using an event study framework covering four election cycles (2009, 2014, 2019, and 2024), we examine three transmission channels, macroeconomic conditions (interest rate, inflation, exchange rate), trading activity (volume, frequency, traded value), and global risk sentiment (VIX), across a five-month pre- and post-election window, with the election month excluded to avoid short-term shock distortion. Channel variables are constructed using Principal Component Analysis (PCA) and tested through multiple linear regression with dummy interaction terms. To address autocorrelation in the initial OLS model (Durbin–Watson = 1.189), the Cochrane–Orcutt procedure is applied, which resolves the issue (Durbin–Watson = 1.990) and yields the primary results. The corrected model explains 55.8% of variation in IHSG volatility (Adjusted R2 = 0.558, F = 7.862, p < 0.001). Results consistently show that global risk sentiment (VIX) is the only significant positive driver of volatility (β = 0.003, p < 0.001), while macroeconomic and trading activity channels show no robust significance. No significant interaction effects are found, indicating that the influence of these channels does not differ statistically between pre- and post-election periods. We conclude that stock market volatility around Indonesian presidential elections is more strongly associated with global risk sentiment than with domestic macroeconomic or trading activity factors. The VIX consistently emerges as the dominant explanatory variable in the estimated model.